Best Value Companies To Watch For 2014
A series where the best financial minds clear doubts about investment, solve queries and educate woman engaged in different profession to understand finance better. In this session we will see how a set of women manage their money.
Sharmila Joshi, head of Equities, Fairwealth Securities and Harshvardhan Roongta, certified financial planner of Roongta Securities are two financial experts who will solve financial queries and guide them to achieve their financial goals.
Below is the edited transcript of the interview on CNBC-TV18.
Q: How do I transit from being a saver to an investor?
Roogta: First, from the income, the residue amount left is savings. And when you park you're saving in productive area which generates returns, then that is investments. Important point is, one should know what his financials goals are, why, when and for what purpose one needs money? Once goals are identified it becomes easy to invest.
Joshi: Generally, women are very non-risk oriented; they don't want to lose money. So they feel that jewellery is a safe investment bet. But over a period of time things are moved in a different direction. The way inflation spiraling, we know that things on the ground are costing more.
Our parents used to invest in bank deposits because at that point the interest rates were capable of taking care of inflation and investments, but now the scenario has changed. We need to shift at more aggressive and progressive financial tools to make investments grow.
Q: Is it ideal to buy gold or silver in physical form or via SIP in long run?
Joshi: Buying gold or silver via SIP or ETF is a better option then buying physical gold. Because you can trade in ETF like any other share in demat account. So if price goes up you can sell it and vise-versa but when you make ornaments chances to liquidate dims and it is done only at bad times.
Q: Which his a better investment option gold, silver or shares?
Roongta: They are two distinctively different asset classes. Now within gold, you can own them in different ways. You can have them either in the form of gold coin, gold bar or electronic form which is called exchange traded funds (ETFs) in your demat account. The price risk remains the same in both cases.
Thirdly, in the form of e-gold in which you can own gold in electronic form, go and encash it. How you take cash out of your bank account, you can simply go and encash it in the form of physical gold in your hand.
Q: When I buy shares of any company do I become a partner to their subsequent ventures?
Joshi: Yes, when you buy shares, you automatically become a shareholder of the company. Every company has a paid up equity capital and when you buy a share; you get that amount of ownership. It could be a small portion but you are the owner of the company. Some one who manages own enterprise is open to risk in the same manner the company in which you invest is exposed to risk. Ideally, you should select a company which has good prospects going ahead.
Q: We invest in an SIP for number of years like 2-3 years and then later we stop investing in those companies. What happens to that money, which we have already invested in SIP? Is it lost? Can we recover it?
Roongta: Systematic investment plan is a way of investing every week, month, quarter or whatever duration that one find best, the invested amount remains intact. It does not get forfeited like in the case of investment made in insurance products where if you don't pay for three years your amount gets forfeited. If your investments are into equities then they are subject to market performance of the fund.
Q: Can I sell those?
Roongta: Yes, you can sell them again and recover what the market prices are on date of redemption.
Q: How about investment in commodities like copper, as nowadays copper is going up, gold goes down?
Roongta: At the basic level of investments where you are not from the industry then it is better to avoid it. Please do not go by hearsay and somebody who is dealing in copper as a product he may know invariably what is happening with the copper prices, demand, and supply. What is the international trend with copper prices? So, he maybe in a better position to take a call.
Q I know I have to invest, but I am too lazy. I don't want to follow the share market, the chart, what is infra and all those things I don't understand, I don't even want to open my Demat account. Can some one help me with this?
Joshi: In this case it is best to open an SIP. Suppose today the Nifty is at 5100 level and you put your more, then again when you put your money next time the market is bad at 5000 level. Here what happens over a long period of time your risk averages out. It is best to start with a small amount, choose a good fund, check some literature and spot the fund to invest.
CNBC regularly talks to fund managers and they do personal finance queries, which will give you a very good idea that which are the good funds at that point in time. Do an SIP in those funds and just taste the water for 6-7 months and then you will soon know that how your investments are done and then maybe you will feel more adventurous and take the next step and do some actual investment in equity or in any other instrument. One has to go through KYC norms and demat account.
Q: Once they select a fund house would you advice it for someone who is just starting out, perhaps just go with an index fund and then experiment with sector funds, mid cap and smaller cap funds?
Joshi: Index fund is a good idea because then you don't really need to even study anything further. In a SIP fund that tracks the Nifty then, when the Nifty goes up your fund will do well and vice-versa but in an SIP you will be averaging. If you get a good feeling over a period time, you can choose the times you want to invest.
Q: Is there certain paraphernalia or research paraphernalia for beginners like me to go through before I decide that this is how I should start with small steps. Do you have certain basic things that we should read about?
Roongta: The best way is to realise that you need to invest. The moment you realise you need to invest you will search for answers. At this juncture there is information explosion if you want to search for something you will have 10 answers.
Q: Information explosion for a beginner like me is difficult as I don't know what to choose and what to omit?
Joshi: Even before you start at company I think two-three things that are very easy. Start by reading newspapers and then correlating them with things that are happening around you. Suppose you read that petrol prices are going up, so what are the implications for the oil marketing companies like BPCL and HPCL.
So, you start going beyond what is in the headline and I think that is the start to investment. The NSE and moneycontrol website is brilliant. They provide loads of information. Any company that you want, any amount of information is available. I think that everyday there is a stock that you can go out and buy. There are 10 stocks that you can go out and buy everyday literally, but you must be able to spot the right stock at the right price that's what the game is for us.
Q: What make an ideal portfolio?
Roongta: We have picked this case of Bibhut P from Bangalore. He requires Rs 50 lakh after 17 years for his kid's education and he needs Rs 5 crore after 29 years for his own retirement. He has also started making certain investments for this purpose.
He has investments in shares, mutual funds, property, other assets but he has loan as well. He invests Rs 21,000 into equity mutual funds, which has been mapped for his retirement. Now, this money he is putting aside every month, so that he accumulates Rs 5 crore at the end of 29 years which will take care of his retirement after he stops working. He invests about Rs 3,000 every month already for his kid's education.
The good point in this portfolio is that he got assest clearly mapped for his goals. A good habit that an investor should develop is that he should specifically dedicate assets for a particular goal and that is seen in his portfolio.
Secondly, he has a long-term view of 29 years and 17 years from now to plan for something for which he has already started. So he has power of compounding to his side.
Let's see what power of compounding? For 29 years, if he continues to make this investment of Rs 21,000 into equity mutual funds, equities have a reasonably good track record of giving about 14% long-term returns. So if I take a 14% compounded rate, his corpus at the end of 29 years by investing Rs 21,000 every month is going to be Rs 9.8 crore. That is a power of compounding. He clearly needs only Rs 5 crore so he is well in place to fund for his retirement.
He has a child's education to provide for, for which he has 17 years and he is investing Rs 3,000. So if I take the same compounding factor, it is Rs 25 lakh. Here is where he is falling slightly short because he has plans to fund for Rs 50 lakh but he is accumulating only Rs 25 lakh. The solution is that he simply needs to - his investing probably weigh too much for his retirement because he is overshooting that now.
He should dedicate another Rs 3,000 out of your retirement corpus. So that becomes Rs 50 lakh at the end of 17 years. So his corpus at retirement will reduce just by some amount. It will be Rs 8.4 crore, which is still above his targeted corpus and on the other hand, he will be able to accumulate the money which he requires for his kid's education.
Had he started doing this just five years later, the retirement corpus would have reduced to about Rs 4 crore and 80 lakh. It would have become almost half.
So the good part is that he has started early. Same applies to all of us, if there is anything that you need to save for, you need to start early, it is magical to see power of compounding works in your favour. So that is probably what you can take when you leave from here.
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